Big Data: It Isn’t Just for Carriers

By | November 5, 2014

This is the era of big data and while it’s no surprise that insurance carriers are big players, the fact is that agents and brokers of all sizes also have a growing stake in big data.

While the insurance industry has always used data to evaluate risk and better understand exposures, today more players in the insurance chain are utilizing larger and more sophisticated data in new, faster and more efficient ways, according to the industry consulting firm, Strategy Meets Action (SMA).

Twenty-five percent of insurers are now investing in big data, according to a report from SMA titled, “Big Data in Insurance: Insurer Priorities, Projects, and Investment Plans for 2014 and Beyond.”

Most spending comes from larger insurers: 39 percent of insurers with more than $1 billion in premium are investing while 14 percent of insurers under $1 billion are investing. SMA predicts that the percent of companies investing will continue to increase through 2016, levelling off between 40 to 50 percent — this includes all Tier 1 and Tier 2 companies (more than $1 billion) and up to 25 percent of Tier 3 and Tier 4 companies (under $1 billion).

But insurance carriers aren’t the only players reaping the benefits of the big data revolution. According to Mark Breading, SMA partner and chief research officer, global brokers and reinsurers are in some cases more sophisticated with analytics and big data than insurance carriers. Intermediaries are using big data to benefit both their clients and themselves.

“If you look the Marshes and Aons of the world, they have staffs of hundreds of data scientists and analytics professionals building models,” said Breading. “When you think about it, the larger brokers actually need to understand risk better than the carriers; it gives them an edge in negotiations and gives them value to bring to those relationships.”

Breading said he sees big data investment in the next tier of insurance brokers as well — those in the $100 million-dollar range.

In short, everyone in the insurance chain — including personal and small business customers — will eventually become beneficiaries of the insights gained from big data.

Big Data Defined

In simple terms, big data uses advanced technologies to analyze vast amounts of data and produce results much more rapidly than traditional approaches. According to Breading, to be considered “big,” data must generally encompass three components.

First, big data is about volume, hence the “big.”

Second, big data is about variety. “You are not just looking at one type of data; you are pulling from multiple places,” Breading said. The data might be considered “structured data” — data generated from transactions — or unstructured data — which could be considered something as simple as email from agents to underwriters.

Most important, big data is about velocity.

Velocity really distinguishes “big data” from everything else, according to Breading.

“The insurance industry has always done analytics and the larger carriers did it with huge amounts of data, but sometimes they would build their models and it would take a week or two before the results get spit out,” he said. “Now big data approaches allow you to run huge amounts of data and different kinds of data where you get a result in an hour, or even within minutes.”

Velocity allows for experimentation and creativity. “Big data gives you a lot of chance to do more iteration, to try to find different combinations, to fine tune your models, and keep finding different insights along the way,” he said.

Those high velocity insights into everything from risk models to pricing to the customer experience are driving the interest and investment into big data projects throughout the industry, the experts say.

Data Transformation

“What data is giving pretty much all people in that cycle is a little bit more knowledge and a little bit better predictability as to expectations — they’re getting smarter,” said Adam Kagan, chief marketing officer for RiskMatch, an analytics firm that delivers a suite of web-based solutions for insurance brokers and agents throughout the United States.

“The worst thing that can happen in the insurance renewal cycle is surprises,” Kagan said. “The client doesn’t want to be surprised; the broker doesn’t want to be surprised, nor does a carrier.”

The most important question that brokers are addressing now — and they’re using it very effectively — is how to connect the data together to get a better deal, or to package the risk better with a carrier, said Kabir Syed, founder and CEO of RiskMatch.

The data has always been there, Syed said. But now it’s become more efficient, cost-effective, and available. “Yes, you have telematics. Yes, you have modeling data but how do you package it to the advantage of a client? That’s more important. That’s where brokers are using it,” he said.

The use of big data can benefit brokers or carriers across a number of areas including their relationship with the insureds, said Jay Kingsley, senior vice president, CoreLogic, a global property information, analytics and data services provider.

“It can make the consumer experience better,” Kingsley said. “The data makes you more insightful and more efficient across the policy continuum — from your underwriting and your customer relationship all the way through the claims process.”

For global insurance broker Lockton Cos. and its clients, big data means digging into the wealth of data available to identify trends, then connecting those findings to practical action that helps make its clients’ businesses better, according to Justin VanOpdorp, senior vice president of Lockton’s analytics team based in Kansas City, Mo.

“We have focused on sifting through various sources of data to find specific ways to make the workplace safer, reduce costs, and improve operations,” he said.

For example, a reduction in the number of lost work days can be a meaningful metric to measure the effectiveness of workplace safety. “By combining data from multiple sources, we are able to provide deeper insights around elements such as the effective use of return-to-work and the impact of employee morale,” said VanOpdorp. “This leads to greater awareness of why certain results occur and leads to more actionable information for the client.”

Big data is a “great catch-phrase” that can mean a lot of things, VanOpdorp said. “It’s easy to be distracted by colorful charts and cool observations. Our focus has been to deliver actionable insights.”

Transforming data into “wisdom” drives a deeper relationship among the client, the carrier and the broker, VanOpdorp said. “Effective analysis can and should lead to more substantive discussions that bring all parties together to solve real business problems.”

Growth

The need to grow in today’s competitive market is one driver of the big data revolution.

Jim Hearn, senior vice president, chief marketing officer, for Middletown, Conn.-based MarketStance, a provider of information and analytics to the insurance industry, says that big data helps guide the drive for growth.

“Everybody is identifying the need for growth and they know that in order to grow, they need to be more articulate about their appetite and that which they want or that which they do not want with their distributors,” Hearn said. “Everybody wants more and better data. They want to grow, but they want to grow smarter rather than just growth for the sake of growth itself.”

For New York-based Crystal & Co., client data and the agency’s own data are key elements to developing risk strategies, but Jonathan Crystal, executive vice president, sees opportunities to stimulate growth and product development by adding outside data sources as well.

“Today, what is most meaningful to our clients is how we use their historical and current loss data to drive actionable strategies to reduce their cost of risk,” Crystal said. “Looking ahead, we are incorporating data and analytical resources from outside the walls of our clients, so-called ‘big data,’ to anticipate future risk factors and trends that will impact shareholder capital. … We see opportunities to create whole new classes of products from sources of data that didn’t exist even three years ago.”

According to Hearn, one of the challenges carriers have is figuring out what type of business they want to write, as well as where and in which classes are they performing well.

“That’s where the data comes in,” Hearn said. “As more carriers look for more and more data before jumping in, they’re being a little bit smarter about their jumping-off point.”

That’s good for brokers and clients, too. Brokers get frustrated when they keep submitting business to a carrier and it keeps getting rejected. “Carriers acknowledge that if they could do a better job of defining and communicating their appetite, first to their own field personnel and then to their distributors, there would be a tangible benefit for the distributors, the brokers, the agents, as well as the carrier.”

Hearn says that’s one of the things that MarketStance is doing with its own collection of data — meeting with the distributors to help better define the opportunities sitting around them.

Brokers are well-positioned to be data brokers for everyone involved.

“We all need to do a better job of using our business information and information exchanging between our trading partners needs to increase,” said Thomas P. Ruggieri, CEO and president of the North American operations for global wholesale and reinsurance broker Cooper, Gay, Swett & Crawford. “That means between the customers and the retail brokers, between the retail brokers and the wholesalers, the wholesalers and the underwriters and back. We need to do a better job of capturing information as it passes through our fingers.”

Investing in collecting big data is one thing; using it wisely is another.

“There’s tons of information in our business, but most people leave it in documents; get it, put it in file cabinets or in drives as Word docs and Excel docs and we just have to harvest it,” said Ruggieri. “It’s all there; we just have to use it.”

Customer and Broker Experience

No one questions the potential of using big data to better define risk. Interest in this area can be seen by the sheer number of new data sources on the market today.

“Every hazard you can think of is out there,” said Mark Breading, partner and chief research officer, for Strategy Meets Action. “If you want to know the coastal storm surge for very precise locations it’s there. You can go buy that kind of information. Risk and new product development are still the top areas for big data and there’s lots of opportunity.”

Big data analysts, however, are moving beyond perils and increasingly turning their attention to customers — both consumers and distribution channels.

“The customer experience and the producer experience is a huge overarching theme that we see in the industry,” said Breading. “There are a lot of carriers investing a lot of money and energy and rethinking the experience of the policyholder — when and how they interact with them. Obviously the agent and broker have a big role in that given most insurance still flows through human intermediaries.”

For carriers to understand the customer and producer experiences, they have to understand more about their needs and behaviors. That’s where big data comes in. Analytics around the customer experience has been picking up steam over the last two to three years, Breading said.

“In fact, if you look at the tier 1 carriers and even mid-tier carriers there are a lot of senior execs in new posts that have the word ‘customer’ in their title,” Breading said. “These executives have broad authority and look across the enterprise. They are not just customer service people; they are customer experience executives or customer advocates that are reporting to the CEO. That’s really indicative to this trend.”

According to Breading, “this is the age of analytics. In the end, the winners will be those that master data and analytics. But there’s still plenty of time to get there, he said. “There’s certainly upswing in interest and investment in big data but we are still just on the front edge of this whole trend.”

Latest Comments

  • April 2, 2015 at 5:49 am
    Remi Martin says:
    you have to pay Big bucks bro.
  • November 6, 2014 at 11:54 am
    Where's my data? says:
    A lot of talk about data in the insurance industry, but I can't find anything that has industry-wide insurance metrics, data or performance details available. Can anyone help ... read more
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